Structuring your digital product pricing for success
There’s a lot that goes into starting a digital product store; creating the products, writing product descriptions and documentation, license agreements, product artwork and demos – the list goes on!
But, deciding on a pricing structure can take some serious thought.
If you’re not sure where to start, getting a ballpark idea from your competitors can be a helpful reference – but there’s more to it than that! Creating your own pricing framework can help you to qualify your products and place them into tiers based on predetermined categories and criteria. There are also some different concepts and pricing models you can utilize to take some of the decision-making weight out of the process and make it a little easier to settle on a number.
Let’s take a look at some tips for structuring your digital product pricing for success!
The baseline factors
It can be tempting to price your products competitively, and easy to forget the cumulative effect of the various costs that go into making the products, as well as running your business as a whole! From domains and website hosting, themes, plugins, and payment processing, to creative software, business registration fees, design, and other professional costs, there can end up being quite a few items to factor in.
Not only that; your time and effort are worth something, too! It’s always good to streamline your product creation and site management processes, but there will inevitably be some degree of dedicated time and maintenance required on your part, not to mention the ongoing effort it takes to manage things like social media, support tickets, and affiliates (if you have them).
Additionally, when you’re the one running the show, you might find that the risk you’ve assumed (along with all of the blood, sweat, and tears you’ve endured to bring your digital store to life) adds additional value to your time. Even though digital product stores often have less overhead than physical product stores (in addition to other significant benefits), building a business is certainly not easy!
If you make digital products, you probably started out responding to some kind of need in the market; most digital products have a certain value to offer customers beyond simple consumption, otherwise they wouldn’t be so popular! Okay, sure – some products exist purely for entertainment purposes, but even that is a type of value in and of itself.
Structuring your pricing can, and should be based on more than your outgoing costs, competition, and product contents; you’ve got to think about the end results that the customer will experience. This is the value-oriented mindset that will help you to settle on prices that are fair for you and the customer – prices that will sustain your business and make your efforts truly worthwhile.
Incorporating value-based pricing brings the focus back to your competitive edge (what your product offers customers that competitor products don’t) and satisfies your own need to be properly compensated for your knowledge, talents, skills, and expertise. With so much competition in the digital product market due to the low barrier to entry, the shift simply must be toward value to bring in significant sales. Plus, who doesn’t want to positively impact their customers anyway?
Before you compete on price…
Although it might seem counterintuitive, if you want to be competitive within your niche, consider adding value instead of reducing price. This is especially helpful if you’re just starting out because you can offer attention-grabbing introductory deals, like bonus content, early access, and limited-time volume discounts.
Physical product sellers use this strategy all the time, as people choose increased value over reduced prices consistently in stores. The idea is to avoid charging lower than competitors and give customers more for their money instead. You can always change your prices later, once you’re past the startup phase!
Pricing models to think about
Starting to get some ideas yet? There’s more! Feel free to get creative with your pricing structure and try out some different strategies. Maybe you want to start a membership site, or you prefer to sell products individually. You might even create bundles to add variety and make the most of your product sales!
Let’s look at the primary models for pricing digital products:
Pricing your products individually can bring a lot of attention to new products, and create a variety for the customer, incentivizing one-off purchases and maximizing the longevity of your products.
Individual product prices can really vary depending on which types of digital products you’re selling, but they tend to have a higher price tag since they don’t directly generate ongoing revenue. Graphic products are often priced under $50, with premium products and some digital artwork into the hundreds, while mid-level digital courses can easily be priced at $100-200 or higher.
Standard prices for audio and music products like .MP3s can be as low as $0.99, but premium royalty-free music used for broadcast purposes can sell for hundreds, or even thousands. Often software and services can be sold at higher prices overall, especially if they are highly specialized.
A variation on individual pricing, bundles essentially give customers a volume discount – and can offer them interesting combinations of individual products that appeal to specific tastes, interests, or goals. By definition, bundles include more than one product, and you can use them to capitalize on the combined value of individual products.
The beauty of bundles is centered around this extra value, and the effectiveness with which they can get more of your products off the proverbial shelves. Use bundles in your pricing structure to incentivize larger purchases, or repurpose and maximize revenue from your existing products, for example.
As a general rule of thumb, you can add up the total value of all products in a bundle and sell it for anywhere from 60-80% of that number. The percentage may be lower for bundles containing significantly older products, or products that aren’t selling as well. Also keep in mind that if your bundle price is under $20, you will likely inspire more impulse purchases!
It’s all the rage these days – and it’s easy to see why! Membership pricing is great for the customer in that they get to pay an affordable monthly subscription fee in order to have a level of access to your products or content that they might not get otherwise. It’s also great for you because it tends to bring in more reliable and predictable monthly income.
If you use the membership model for your pricing structure, you’ll want to consider an extended list of costs and requirements, from integrating a membership structure with your website, to replenishing content and products on a regular basis.
Creating a fully-functioning membership site may or may not be for you; it depends on your business goals, revenue needs, product creation means, budget, and resources. If you decide to go for it, having a plan for pricing your memberships is key.
One of the fun things about pricing your digital products is coming up with different versions to sell at different price points. Offering some variation on “standard” and “premium” versions can be very effective for driving more sales toward higher prices; consider making some of the contents of your products into the “bonus content” that you will use in your premium version, reserving the “bread and butter” content for the standard version.
You can devise standardized pricing tiers that you will use for pricing all of your products going forward; a reliable template to play off of and use for reference when creating new products. Tiered product prices also widen your audience, allowing access to people with different needs and budgets!
Creating the right framework
A clear pricing structure doesn’t just make things more streamlined for you; it can impact your customers and their purchase decisions by creating a familiar set of reference points that let them know what to expect, informing them and helping them to feel confident as they spend their money at your store.
You can communicate a lot to your customers through your prices, including the quality, complexity, exclusivity, and scope of your products. Settling on a consistent structure also shows customers that you don’t price your products arbitrarily, and that you are thoughtful, deliberate, and professional.
Your foundation is your freedom
No matter which types of digital products you sell, pricing will be a huge part of your business. Having a solid foundation to draw from and rely upon ultimately gives you freedom – more specifically, the freedom to make systematic decisions, deliberate less, spend your working hours on other things, and move forward with confidence because you’ve prepared ahead of time.
What methods have you used to create your own digital product pricing structure? We’d love to hear your thoughts, so let us know if you have any insights to share in the comments below!
Illustration by Jessica Johnston.